IRDAI’s proposed distribution norms ruffle feathers of LIC agents, broker body

Voicing concerns over the impact of the reforms IRDAI is proposing to norms governing distribution, commissions and expenses, bodies representing insurance brokers and Life Insurance Corporation of India (LIC) agents have urged the insurance regulator to consider the likely repercussions on the jobs and livelihoods.

Cost efficiency should not be pursued in a manner that reduces the number of active agents or makes the profession economically unsustainable. The primary objective of distribution reform should ultimately be to increase insurance coverage and improve policyholder outcomes, said the Life Insurance Agents’ Federation of India (LIAFI) in its responses to IRDAI.

Any substantial reduction in the earnings potential of agents could discourage new entrants and adversely affect the existing agency force, Secretary General B. Markandeyulu said.

The federation highlighted the role of LIC agents in strengthening the insurance movement in India and said the agency channel remains crucial for expanding insurance access. LIAFI represents several lakh agents of the state-owned insurer.

Favour strict action against frauds

While supporting strict action against deliberate fraud, unethical practices and genuine cases of mis-selling, LIAFI said “regulatory measures should differentiate between intentional misconduct and genuine errors or situations beyond an agent’s control.”

The federation said commissions are the primary source of livelihood for individual agents and should be viewed as fair compensation for professional services rendered, rather than merely as a cost to be reduced. It added that, with employment generation being a national priority, the regulatory framework should ensure that insurance agency remains an economically viable profession.

Demand grandfathering provisions

Any change in commission structures must be based on a comprehensive assessment of the actual services, responsibilities and cost involved. “We request that appropriate grandfathering and transition provisions be incorporated, particularly in relation to existing business and continuing servicing responsibilities,” Mr. Markandeyulu said.

Expressing concerns over the consultation paper ‘Recalibrating economics of insurance distribution’ that IRDAI has opened for public comments, the Insurance Brokers Association of India (IBAI) said it supports the regulator’s stated objectives of policyholder protection, transparency, curbing mis-selling and wider insurance coverage. But the more than thirty separate commission caps by product and channel, together with a one-third cut in insurers’ overall expense limit will harm the very policyholders it seeks to protect.

Reduce reach to small towns

“Insurance is a people business. The [consultation] paper will reduce the people who reach customers in small towns and the people who service them inside insurers, and it contains no mechanism to ensure that the savings reach policyholders as lower premiums,” the IBAI said, attributing it to an unnamed spokesperson.

In a release, IBAI, which represents 798 licensed insurance brokers, said it will file its detailed response by October 25 and urge IRDAI to retain the 2023 expense-of-management framework, confine caps to coerced-choice sales, require premium refunds to customers where such segments run low claims ratios and publish an impact assessment before drafting regulations.